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Century-old law priming pump prices

The Greek tanker Agathonissos at berth at Colonial Group terminals on the Savannah River.

Photo courtesy Colonial Group

The Greek tanker Agathonissos in berth at the Colonial Group terminal on the Savannah River.

Ask Colonial Group president and CEO Rob Demere why gas prices are higher in Savannah than in Macon or Atlanta and he’ll give you a two-word answer — Jones Act.

Ask him what he plans to do about it and Demere will tell you about the trip he has planned later this month to Washington, D.C., to talk to lawmakers and others about amending the legislation, known officially as the Merchant Marine Act of 1920.

“As a third-generation local Savannah family business, we’re heavily invested in Savannah and care a great deal about the community and its prosperity,” Demere said. “We don’t own the first drop of crude oil, so we’re completely aligned with the consumer in wanting low fuel prices.

“Hopefully, we can make some inroads in D.C.”

Demere and a group of Colonial Oil executives will travel to the nation’s capitol April 18 at the behest of Grover Norquist, president of Americans for Tax Reform, to meet with lawmakers and organizations about the act, a maritime commerce law that puts restrictions on vessels that carry goods between U.S. ports.

The nearly 100-year-old law — originally designed to protect U.S. shipping interests and mariners — mandates, among other things, that all goods transported between U.S. ports must be carried in ships built, owned, operated and crewed by Americans.

That’s not an issue with those living in the country’s interior, where gasoline from the Gulf is transported to their areas by pipeline. But for consumers who live along the East Coast and in the Northeast — where gas pipelines are either scarce or nonexistent — it’s beginning to make a big difference.

That’s because, these days, there aren’t nearly enough Jones Act ships in service and most of them are on long-term charter, says GasBuddy senior petroleum analyst Gregg Laskoski. And those that are available are usually expensive.

According to the U.S. Energy Information Administration, in 2012, close to 40 tankers and up to 270 barges were used to move petroleum products and crude oil in coastal waters. But not all of these vessels are capable of or available to move product from the Gulf Coast to the Northeast due to size and other factors.

“This is an extremely timely issue,” Laskoski said. “With the energy boom here and the availability of less expensive domestic gas, it only makes sense to rescind the Jones Act and allow gasoline from the Gulf refineries to move by ship to the East Coast, where there is no pipeline.”

Demere agreed.

“The Jones Act chokes off Savannah’s ability to take advantage of the cheapest gasoline in the world, which is produced domestically right here on our own Gulf Coast,” he said. “What’s worse, the Jones Act actually works to encourage the export of that cheaper gas to Central and South America over Savannah and the rest of the East Coast.

“As a result, Savannahians aren’t able to benefit from the U.S. energy boom — all because of government red tape.”

Why is gas higher here?

Many Savannah residents complain that gas prices are lower in other Georgia cities, such as Atlanta and Macon, and they’re correct, said Ryan Chandler, vice president of business development at Colonial Group Inc.

“The reason for the lower prices is that those markets have access to a pipeline supply direct from the U.S. Gulf Coast,” he said. “Savannah is forced to pay what amounts to a Jones Act penalty to bring gasoline and diesel in from the Gulf Coast, and that’s only if there are ships available to carry the cargo,” Chandler said. “When Jones Act ships aren’t available, Colonial is forced to import gasoline and diesel from foreign markets to meet Savannah’s needs, which frankly can’t compete with pipeline economics plus truck freight to Savannah.”

Savannah is not alone.

“The whole East Coast is facing this dilemma,” he said.

Many consumers don’t understand the costs that comprise the retail price of gasoline, Chandler said.

“Approximately 72 percent of the cost is for crude oil, 13 percent for the government, and 8 percent for the refining process,” he said. “The remaining 7 percent must cover the cost of infrastructure, employees and services that support transportation from the refinery, regional storage and distribution and the retail fuel station before gasoline finally finds its way into the consumer’s vehicle.

“If the Jones Act were amended to allow the use of the most economical ships in the market for the transportation of domestic energy, we’d immediately shave between 7 and 10 cents per gallon off the cost of gasoline in Savannah,” Chandler said, adding that the savings per gallon could go even higher since the average cost of Gulf Coast gasoline last year was 14 cents lower than the East Coast’s supply.

The Colonial Oil executives who will visit Washington, D.C., plan to voice their concerns with members of the Independent Fuel Terminal Operators Association, with their congressional delegation and speak with Grover Norquist, a long-time supporter of reducing government red tape, particularly in the area of energy.

In the meantime, the company urges Savannah residents to write to their congressmen to demand a change.

A third generation family company founded in 1921, Colonial Group, Inc. is a diversified energy and port-related company, ranking No. 64 on Forbes List of America’s Largest Private Companies with over 900 employees. Its history is rooted in the marketing, retailing, and distribution of petroleum products for transportation, industrial and marine applications.

Over the years, its offerings have grown to include natural gas storage and marketing, liquid and dry bulk terminaling, retail fuel through Enmark convenience stores, industrial chemical supply & distribution, and marine vessel safety and compliance consulting.

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ABOUT THE JONES ACT

The Merchant Marine Act of 1920 is a U.S. Federal statute that regulates maritime commerce in U.S. waters and between U.S. ports. Section 27 of the statute, also known as the Jones Act, requires that all commercial shipping between U.S. ports and trade or navigation in coastal waters must be performed by U.S.-flag ships constructed in the United States, wholly owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. Steep penalties result from noncompliance.